Posted about 2 months ago Lease Option and Subject-To: How to Profit Throughout Closing a Deal Lease Option and Subject-To: How to Profit at Purchase, During and At the Closing of a Deal Lease options and subject-to deals are separate real estate investing strategies. Yet, when you combine the two methods, you profit and your potential for success increases. The great thing with these types of deals is you don’t need a big down payment to invest. Creative real estate investing strategies work great to allow new investors to start on a path to wealth. How Lease Options Grew My Rental Property Business One of the best parts of real estate investing is building a passive income. In real estate, rental properties provide passive income where you collect rents each month. I wanted in on the stability of passive income. I had heard about lease options, which allow investors to lease a property to a different tenant. The investor agrees to pay the property owner a certain rate each month. However, the investor sets the rate of the rent with the tenant. If the tenant pays more than the amount the investor owes the owner, they earn income. Once I started using the lease option method, my rental property portfolio quickly grew. Within 18 months I investment in 16 properties. These properties varied from single family homes to multifamily housing. I used a combination of lease options and subject-to deals to increase my passive income. Understanding Lease Options With a lease option the investor has the right to lease the property with the option to purchase the property by the end of the lease period. The owner remains on the deed and mortgage, which is like a wholesale deal. However, with a wholesale deal the investor doesn’t want to own the property. The way the investor makes passive income with a lease option is by leasing the property out to a tenant. For example, if the investor agreed to pay the owner $1,000 each month but charges the tenant $1,300 each month, the investor makes an income of $300 per month on the property. Understanding Subject-To A subject-to deal works similarly to a lease option, but the investor has more rights with a subject-to investment. With subject-to the title transfers from the seller’s name to the investors name. The contract stipulates that the mortgage remain in the seller’s name. However, the investor agrees to cover the monthly mortgage. Since the title transfers to the investor, the investor can create a lease option with a different investor. That investor then pays a monthly rate for the right to lease out the property to a tenant with the option to purchase the property. The Magic of the Lease Option & Subject-To Combination When you use the subject-to and lease option together, you then can refinance the property instead of purchasing outright. In this scenario, the down payment and closing costs are covered by the equity and loan. Not everyone feels comfortable with a subject-to option, even when facing foreclosure. In those cases, I create a deal where after six months of a lease option agreement the contract switches to a subject-to deal. Once you have a title for property in your name and monthly rental income in place, it becomes easier to secure a loan. This lays the foundation for you to then invest in more properties and build your real estate investment portfolio. Ways to Profit with Lease Options and Subject-To Deals With these creative investing strategies, you can make money in multiple ways. 1 – At the Time of Purchase When you purchase a subject-to property the aim is to line up a lease option tenant simultaneously. The deal usually requires a deposit but the lease option tenant must also pay you a deposit. When timed correctly, you can cover your deposit with the payment from your tenant. Charge more for the tenant deposit than you owe. For example, if your deposit amount is $5,000 and the tenant pays you a deposit of $9,000, you make $4,000 in the deal. 2 – Monthly Rental Payments As we discussed, you owe the seller monthly payments to cover the mortgage cost. This is an amount you agree to when you sign the contract. To make an income each month, you need to charge a higher monthly rate to your tenant than what you owe to the seller. Your income is the difference in the amount you receive and the amount you pay each month for the property. This is passive income and one way to gain wealth through real estate investing. 3 – At the Time of Sale Finally, when you sell the property, you should make money. You agree to a specific purchase price with the seller when you sign the contract at the beginning of the deal. To make money, set a higher purchase price with the tenant buyer. Build Wealth with Creative Investing Strategies Both lease options and subject-to deals make it possible to invest before you have wealth. For investors that want to work hard and get out of your comfort zone, these investment strategies work.